Tariffs, Trains, and Trade: The Role of Institutions versus Technology in the Expansion of Markets
University of Colorado; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
Carol Hua Shiue
University of Colorado-Boulder
March 1, 2008
CEPR Discussion Paper No. DP6759
We study the relative importance of technology and institutions as factors determining the size of markets. The setting of 19th century Europe presents a unique opportunity to address this issue, since it witnessed fundamental change in both dimensions. First, Germany went from around 1,800 customs borders to none through the Zollverein customs treaties. Second, it moved from a situation of monetary disorder to currency unification. And third, the 19th century saw the introduction of steam trains, the key technology that revolutionized transportation between markets. Changes in market integration are studied in terms of the spatial dispersion of grain prices in 68 markets with more than 10,000 observations, located in five different countries and fifteen different German states. We find that the emergence of integrated commodity markets in 19th century Europe is in major part due to the transportation revolution in form of the railways. There is evidence that also customs liberalizations and, more so, currency agreements improved trade possibilities. However, the impact of trains was larger than the effect of these institutions: about three times larger over the long horizon, and around 50% larger for the relatively short time horizon of twenty-five years. These results suggest that as significant as institutional factors were for the expansion of markets, technology factors may have been even more important.
Number of Pages in PDF File: 71
Keywords: Currency Agreement, Customs Liberalization, Market Size, Steam Train, Trade, Transportation Technology
JEL Classification: F1, F3, N10, O3working papers series
Date posted: June 10, 2008
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 1.282 seconds